The U.S. Supreme Court dealt a blow to power generators, upholding a federal rule aimed at encouraging industrial consumers to cut electricity use.
The justices, voting 6-2, said the Federal Energy Regulatory Commission acted within its authority with the order, which sets rates for an energy-saving practice known as “demand response.” The court also upheld the formula used by FERC.
EnerNOC Inc., the top U.S. provider of energy conservation services, jumped as much as 59 percent in New York trading. Shares of independent power producers fell, led by Dynegy Inc., which declined as much as 10 percent.
In challenging the rule, the biggest U.S. energy operators were seeking a chance to bolster their profits. A decision against FERC also would have benefited NRG Energy Inc., FirstEnergy Corp., Exelon Corp., Talen Energy Corp., Calpine Corp., Public Service Enterprise Group Inc. and American Electric Power Co.
EnerNOC backed the FERC rule, as did major energy consumers, including aluminum producer Alcoa Inc.
The case centered on the U.S. Federal Power Act, which lets FERC regulate rates only at the wholesale level and leaves retail regulation in the hands of the states.
That statute “aims to protect ‘against excessive prices’ and ensure effective transmission of electric power,” Justice Elena Kagan wrote for the court. “FERC has amply explained how wholesale demand response helps to achieve those ends, by bringing down costs and preventing service interruptions in peak periods.”
Trade groups representing the power industry said FERC was making a transparent attempt to regulate retail sales. A federal appeals court agreed, saying the agency had gone beyond its authority.
Advocates of demand response say it can cut air pollution and reduce the need to build additional power plants. Demand response helped the electrical grid maintain reliable service when the system faced potential supply shortages during the Polar Vortex cold snap in January 2014, according to PJM Interconnection, which runs the mid-Atlantic grid.
“We are delighted,” said Katherine Hamilton, executive director of the Advanced Energy Management Alliance, an industry group that sought affirmation of the FERC rule.
“This decision will allow consumers to reap the full benefits of demand response — cost reductions that accrue to those who directly participate in those programs, as well as to the entire customer base,” Hamilton said.
Melissa McHenry, a spokeswoman for American Electric Power, had no immediate comment by phone Monday on the Supreme Court ruling. Paul Elsberg, an Exelon spokesman, had no comment when reached by email, and Dynegy spokesman Micah Hirschfield said in an email that the company’s attorneys are studying the ruling.
Representatives of NRG Energy, Talen, Calpine and Public Service Enterprise Group didn’t immediately respond to queries.
Independent power producers “have the highest volatility in the power and utilities sector since they have the most exposure to commodity prices,” Bloomberg Intelligence analyst Stacy Nemeroff said by email Monday.
Although the disputed FERC rule applied only to the energy market, the case is likely to have ramifications for demand response in the capacity market, which is where generators are paid for commitments to provide power three years in the future. In that market, proponents say demand response could save as much as $9 billion a year.
PJM, which runs the nation’s largest grid and has the highest amount of demand response of all the regional markets, paid major power consumers $584.6 million through September in return for commitments to drop electricity consumption during periods of peak use. In return for actually cutting use, power curtailment service providers collected $6.84 million this year.
PJM, whose network stretches from Washington to Chicago, covering all or parts of 13 states plus the District of Columbia, secured commitments of about 11,000 megawatts of power reductions in an annual auction held in August. That’s about enough power to run New York City on all but the hottest summer days.
Justices Antonin Scalia and Clarence Thomas dissented. Justice Samuel Alito didn’t take part in the case. Although he gave no reasons, Alito’s most recent financial disclosure report indicates that he or his wife owns shares of Johnson Controls Inc., whose EnergyConnect subsidiary helped defend the FERC rule.